Indian truck drivers clock an average of 280 km per day, much below the world average of 400 km per day and far below the 700 km the average truck driver in the US does every day. The underperformance of Indian truckers has less to do with bad roads and less fancy trucks and more about prevailing archaic laws.
Truck drivers in India spend 60 per cent of their time off roads negotiating check posts and toll plazas, says UBS Securities, which has also found that there are 650-odd check posts in the country and 11 categories of taxes on the road transport sector.
Since road traffic accounts for 60 per cent of freight traffic in India, the slow movement of trucks across states leads to productivity loss. According to UBS, if the distance covered goes up by 20 per cent per day, Indian truck productivity would improve by 12 per cent.
Higher productivity would cut the need for buffer stocks; reduce the loss of perishable goods, cut down the need for many warehouses, etc.
Analysts say the implementation of the goods and services tax (GST) could provide the kind of productivity boost illustrated above. Gautam Chhaochharia, head of India Research of UBS Securities, explains the benefits of GST,
1) Unified market: The GST will cut down the large number of taxes imposed by the central government (eg. central VAT or excise duty, services tax, central sales tax on inter-state sales, etc.) and states (VAT on sales, entertainment tax, luxury tax and octroi and entry taxes levied by municipalities). This will lead to the creation of a unified market, which would facilitate seamless movement of goods across states and reduce the transaction cost of businesses.
2) Lower incentive to evade tax: Currently, companies have to pay taxes on entire underlying value of the product/service, but under GST, companies in a chain will have to pay tax only on the value-addition. So, the actual tax paid will likely be small and reduce the incentive for evasion.
3) Widen tax base: GST will give credits for all taxes paid earlier in the goods/services chain incentivising tax-paying firms to source inputs from other registered dealers. This will bring in additional revenues to the government as the unorganised sector, which is not part of the value chain, would be drawn into the tax net. Besides, states will be allowed to tax services (as opposed to only the central government) under the GST.
According to the National Council of Applied Economic Research, government's tax revenue will increase by about 0.2 per cent because of GST implementation, while GDP growth could go up by 0.9-1.7 per cent. Exports will also get a boost as they are zero-rated for taxes and also because the fall in cost of manufactured goods and services under GST will increase the competitiveness of Indian goods and services in the international market, UBS says.
Finance Minister Arun Jaitley on Friday said that ensuring the passage of the constitutional amendment Bill in Parliamentary will be a priority for the government. The government will also need the consent of 50 per cent of states to implement GST by April 2016.
However, a consensus is still missing on the final GST tax rates and recommendations vary from 16 per cent to 27 per cent.
Finance ministry officials are now hopeful of introducing the bill in the current session of Parliament.
The change in stance came after Jaitley assured state finance ministers that the Centre would take care of any revenue loss due to the rollout of GST. However, he rejected their demand for excluding petroleum and tobacco from the ambit of the new tax regime. States were clearly told that the Constitution gave the right to tax tobacco to the Centre.
In case of petroleum, which accounts for as much as a quarter of the revenue for some states, the finance ministry is learnt to have dug out minutes of an empowered committee meeting that took place in February where states had agreed to keep oil products within GST.
On the second concern related to providing for compensation for five years after GST rollout, the Centre appeared to go along with the states. The Centre is also willing to address the concern related to including the compensation provision in the bill.
The finance ministry is also working out a solution to deal with the worries of revenue loss to "manufacturing" states such as Gujarat and Maharashtra.
It is not clear how the Centre plans to deal with the issue of entry tax, which the states want to be retained, citing revenue implications.
While Rather said that a solution will be found within a week, a finance ministry official said "a week is too long in politics" and the government would try to introduce the bill in the current session of Parliament.
States such as West Bengal are, however, still not on board. "GST cannot be introduced at the cost of loss of state revenue meant for development of people," said state finance minister Amit Mitra.
Although Gujarat is one of the major protestors, the Modi government is confident of getting the state on board. Its calculations to push the GST legislation hinge on control in several states where it is in power. In addition, it is banking on support from Punjab and Andhra Pradesh along with consuming states such as Bihar and Uttar Pradesh, which stand to gain from the introduction of GST. The government also believes that it has support from Kerala and Karnataka, two Congress-ruled states.
In an action packed evening, Jaitley proposed a formula to break the impasse and urged states to reconsider their stand, while staying firm on the states demands for exemptions.
In a bid to bridge the trust deficit between the states and the Centre, Jaitley had approved the release of Rs 11,000 crore as compensation for loss on account of central sales tax which had been pending since 2010. He had also vowed to pay the pending amount as he moved to ensure that the states come on board for rolling out the tax reform measure which has the potential to add significantly to government revenues and overall economic growth.
Prime Minister Narendra Modi (left) with finance minister Arun Jaitley. The Modi-led NDA government had been pushing for GST since it came to power in May year.
Implementing GST, the most ambitious indirect tax reform, is a centrepiece of the Narendra Modi government's reform agenda. The government is hopeful of introducing the constitutional amendment bill which will pave the way for rolling out GST in the current winter session of Parliament. The tax reform measure has missed several rollout dates in the past.
